A List of Strategies and Tips that Will Help You to Start Crypto Investing Off on the Right Foot
We describe a few basic strategies for investing in Bitcoin and altcoins. The following are all reasonable strategies that can help you invest in the volatile cryptocurrency market.
TIP: These are white-hat tips for 100% legal and above board investing and trading. Not investment advice, but informational and educational content aimed at explaining some basics. Further, this is only about direct investments in cryptocurrency (so no GBTC suggestions here). We won’t even be discussing grey area things like “start an ICO” or “try that crypto lending program.”
Things to Keep in Mind Before You Invest in Cryptocurrency
First, here are some things you should consider before you invest anything in cryptocurrency:
- Do your research. Focus investing on coins you believe in and don’t mind “bag holding” (I suggest Bitcoin and Ethereum only; alts are higher risk / higher potential reward) and use exchanges and wallets that you are confident in using (I suggest starting with Coinbase/Coinbase Pro; that is arguably the most beginner-friendly solution for an exchange/wallet). TIP: I would say “diversify”… but that is a little dangerous for a new investor. Only diversify once you know what you are doing. To start, stick with the safer bets Bitcoin (and to some extent Ethereum), then make your way to the top alts like LTC and XRP, then consider the ones further down the list.
- Take some time to understand the history of the market. Crypto markets operate 24/7. Major price action often happens when volume is low in early AM. Sometimes crypto goes up 400%, sometimes it goes down 80%, sometimes a coin does nothing for months… good luck telling which one of those events is coming next. If you come in during a phase when things are up, you may think it will always be like this, but it never has been the case. Sometimes BTC is up and alts are down, sometimes alts look like they will dominate, sometimes everything is up, sometimes everything is down, etc. Rarely will everything be up, but when it is, that phase is not likely to last long (and the mood could very well change while you are sleeping or out on a weekend on a Saturday night). You must be ready for the changing mood, only research and/or experience will prepare you for the many possible worlds of Bitcoin.
- Realize that the market is volatile and that while we can rightly call investing in cryptocurrency investing, many of the chances you take will be high risk… and some might even have an air of gambling about them (sort of like investing in penny stocks; it’s investing, but you have to be ready to lose 80% – 100% of your investment if you HODL).
- Be conservative and cautious. If you keep your investment reasonable and gradually enter the market over time you’ll remove a lot of the stress of the day-to-day. A reasonable approach is to limit your crypto investments to 1% – 4% of your investable capital and to limit buy-ins to no more than 10% of that. If you use stop losses to mitigate risk and technical analysis to guide your timing of the market, even better.
- Have a long view of the market. Unless your strategy calls for it, try not to focus too much on what is happening now. Try instead to pick a strategy and investment, stick to it, and keep a long view of the market. It’s OK to change your strategy mid-way through as you learn more, just make sure you have a plan and purpose. You are either going to invest, trade, or both. If you are investing, try to limit your trading and try not to focus too much on dollar values of the day. If you are trading, pay attention to your dollar values and don’t go into HODL mode at the top.
- Be wary of your emotions. Your emotions will almost always lose you money. The only exception is when you luck out and FOMO buy the bottom or panic sell the top. Always use data, never listen to your gut, heart, or anything else that hasn’t been formulated based purely on data. FOMO, is a big NO-NO.
- Start small. Start with a very small amount of money and then increase it once you know everything is working. This advice applies to sending money between exchanges, testing a bot or TA strategy, trading, sending money between peers, etc.
- Be aware of the tax implications and regulations. There are complex tax rules and a few regulations. Nothing unmanageable, if you prepare in advance, but nothing you can ignore either. As a rule of thumb, if it is questionable in real life (online gambling, buying stuff on the dark web, not paying your taxes, etc), then it is at least questionable in the crypto-sphere as well.
- Be aware of the trend. You will do much better if you can tell the difference between a bull market and bear market.
Basic Cryptocurrency Investing Strategies
If you have all the above in mind, and thus are going to be strategically investing in or trading coins you like, have an understanding of the market’s history of volatility, and know what exchanges you are going to use… then it is time to pick an investing / trading strategy or two to implement (this is much better than investing everything at once without a clear plan for what getting out of the market looks like).
Here are a few general investing strategies that might suit you.
Go all-in and HODL (Try to avoid this one): The simplest thing to do is to go all-in today and then “just HODL.” The problem with that strategy is that it is like walking up to the roulette table and putting it all on black. This is valid, but the strategy lacks nuance. If you manage not to time the absolute bottom of the market, you can end up watching your on-paper wealth disappear without many options for doing more than cutting losses or waiting.
Bottomline: Buying and HODLing is probably the best strategy on earth… until it isn’t. You really should have an exit plan when it comes to investments. It is generally smart to take profits or to sell once a bull market is over. However, if you are going for the long term, buy and hold is nice and simple and any price is probably a good enough price. Still, this one risks going all in at the top and HODLing all the way down. That can really sting, so check out the other options.
Create an average position and then HODL: This is a simple and conservative strategy that helps remove you from worrying about the day-to-day prices. Either you buy at regular intervals regardless of the price, or you buy incrementally as over time when the price is down. Creating a long position over the course of months or even years helps to avoid mistiming the market. In-between, as you see profits here and there, you can take some or all (and then reinvest those later if and when you see more attractive prices). One would likely also want to gradually exit positions as well. Gradually entering and exiting positions over the course of time allows you to mitigate risk while you invest. This can be a good strategy for a volatile high-risk high-reward asset like Bitcoin. As a bonus, you may end up paying the long term capital gains tax rather than the short term (it is about 1/2 as much) and you’ll avoid some of the headaches of reporting complex crypto taxes traders have to deal with.
Bottomline: Averaging in and HODLing is the best bet for new investors. Hands down. No contest. It is really similar to “go all-in and HODL” except it gives one way more breathing room and options for what to do if you mistime the market. Sure, it doesn’t feel as fun if you start this right before an epic run, but in such cases, just be happy with the buys you got in before the run. You will likely have a chance to buy low coming up, and you will have money on hand for it! Conservative implies caution in trade-off for a lower reward in the short term in some cases. It is a solid trade-off 9 times out 10.
Trade, aiming to buy low and sell high: You really don’t need to know anything more than how to buy and sell crypto to do this. Buy at prices that you think are low, such as whatever the price is after a few days of the price falling, then aim to sell when prices are higher. You can either set stop losses incase you get it wrong, or you can “hold bags” (essentially reverting to a “create an average position and hold” strategy when you get it wrong). If you want to do this like a pro, then you need to study technical analysis (TA). With TA you can base your buys and sells on support levels, moving averages, etc. TA will help you increase the profitability of your trades if you get it right, but it could psych you out if you get it wrong. If you do trade, watch out for fees and portfolio erosion. Experienced traders can outperform HODLers in sideways markets, and might outperform them in bearish markets (due to a trader being more apt to sell and wait in cash). However, traders (especially amateur traders) are bound to miss out on some quick and epic runs as they chase the last coin that did well into the ground while missing out on the next one in line. If you don’t have the time and attention to give to the 24/7 volatile crypto markets, consider only trading some of your total investable funds. It takes time and discipline to learn how to be event a decent crypto trader (super fun though).
Bottomline: Trading is fun, and it can be the most profitable strategy if you are good at it, insanely disciplined, and well versed in TA. However, “noobs” tend to get “rekt” trading for a myriad of complex reasons. No one thinks they are going to underperform a HODLer by trading, but most do (as far as my research suggests). It’s ok to get bumps and bruises on your way to getting good, but don’t kid yourself into think you are already there when you aren’t. Since you likely aren’t, use very small buy-ins and don’t trade too frequently to start.
TIP: You can trade to dollars, or you can trade crypto-to-crypto. Crypto-to-crypto has the bonus of leaving you in crypto while you try to grow your stack of a given coin. That said, it is harder than it looks and can leave you missing out on runs… so keep that in mind.
Use a Trading Bot to Trade: Trading bots are software that handle your trades for you. The real benefit is that it can do your bidding while you sleep. It takes all the stress out of sleeping. If you are going to trade, it is likely worth the time and effort and money it takes to get a bot up and running. You don’t have to do anything fancy with it, just let it place stop losses for you, or if you know some basic TA, try letting it trade things like death crosses and golden crosses on 2hr+ candles (this strategy is common enough that you need to watch out on any timeframe, if everyone automates this with no extra parameters… then every cross will be even more eventful than it already is).
Bottomline: A trading bot might be too intense for a new trader who isn’t also somewhat of an amateur programmer with some basic knowledge of trading and TA (it isn’t a high bar, but there are a few barriers and learning curves)… but honestly, once you have the chops it’ll take a lot of stress off your day. You might not be awake to sell at 4am while the market is dumping. You may not be sitting next to your computer ready to buy the Golden Cross that happens while you are at the office… but your bot is ready and willing and making choices based on nothing more than data. Take your emotions out and let your crypto-bot make logical choices for you.
NOTE: I am mentioning MACD crosses above for a TA strategy for the simple fact that short term averages MUST cross over long term averages when the price goes up and down when the price goes down. Other technical indicators are more predictive and help you define probabilities, MACD crosses are just necessary occurrences (which make them well suited on longer time frames bots focused on investing over day trading).
Use a Trading Bot to Invest: The name trading bot is misleading. You don’t have to actively trade using a trading bot. You can use it to accumulate a coin, to manage risk (to set stop losses and stop buys, or you can use it to exit positions only when charts are very bearish and then re-enter the second they turn around). Essentially you can use a bot to protect or grow your investment by picking some low risk / low reward conservative strategies. You may know you want to be invested in Bitcoin, but that doesn’t mean you’ll want to ride it down during an 80% correction. Your emotions might get in the way, but your bot doesn’t have those, so tell it what you want and then walk away. Bottomline: If you are going to use a bot, try out this method first. It is a good choice for intermediate investors who want to be in crypto, but don’t want to be a martyr and HODL every coin they have no matter what.
Arbitrage: Did you know you can sometimes buy a coin cheaper on one exchange and then sell it slightly higher on another? That is called preforming arbitrage between exchanges (or just “arbitrage”). Arbitrage can be super profitable, but you need to move quickly. You can use a bot, but you’ll need to give withdraw permission to your bot… which can be a little stressful.
Bottomline: This is a deceivingly risky move full of traps due to the time it can take to send cryptos between exchanges. However, when all goes well it is very simple and profitable. Not for new users, but something to work toward having in your toolkit. Here is a hint, if you have the coin you are trading into and out of on both exchanges already, then you can buy and sell now and then move the coins (you don’t have to buy, send, wait, and then sell). 😉
Do A Mix of the Above: One can do a mix of the above to play it safe while learning about and enjoying everything cryptocurrency has to offer. You can have one instance of your bot in invest mode, one in trade mode, you can trade a bit by hand, and you can store the rest of your funds in a secure offline wallet. Maybe your wallet outperforms all your other good intentions, maybe your bots save you from your own emotional trading? Here is the thing, if one thing is working very well for you and the others aren’t, now you know what type of investor/trader you might want to focus on being.
Bottomline: This is complex because it involves soaking up and executing a variety of strategies. This however should and would be most people’s endgame. If you have a enough of a mastery of every tool to use it, then why not use them in conjunction picking the right tool for each job?
ON TA STRATEGIES: In terms of TA it makes sense to stick with the basics until you can answer for yourself “what is the best TA-based investing strategy for me.” I like using MACD and GUPPY moving averages and looking for bullish and bearish cross overs (as it is impossible to mess up; they will cross over if the market is bullish and will cross under if bearish, necessarily)… but you should find your own style. Likewise, I prefer to stop and ladder and average into and out of coins with small buy ins always staying partly in cash and partly in crypto, but I can’t tell you how to play your hand. I’m trying to offer general tactics here, not specifics. Feel free to ask non-specific questions below.